Europe Sets Big Fines in Settling Libor Case

Joaquín Almunia, Europe’s commissioner for competition policy, announced details of the case on Wednesday in Brussels.Credit John Thys/Agence France-Presse — Getty Images

LONDON — Demonstrating a new resolve to punish bank misconduct, the European Union fined a group of global financial institutions a combined 1.7 billion euros ($2.3 billion) on Wednesday to settle charges that they colluded to fix benchmark interest rates.

The settlement was the largest combined penalty ever levied by the European competition authorities and is the first time that American banks have been fined in a set of interest rate scandals that have also drawn scrutiny from regulators in Britain and United States. Those regulators still have their own investigations underway.

“By European standards, it’s a large fine,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels. “It signals that the time when only the U.S. can impose big fines is probably over.”

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Still, the action on Wednesday showed some of the limits to the European Union’s ability to ride herd on financial institutions. The settlement was announced not by bank regulators but by antitrust officials, highlighting Europe’s lack of a central financial markets enforcer with powers similar to the Securities and Exchange Commission or the Justice Department in the United States, or the Financial Conduct Authority and the Serious Fraud Office in Britain. Nor are there any concrete plans to create such an enforcer for the European Union.

Those benchmark interest rates affect trillions of dollars of business and consumer loans and credit each year. Nearly 18 months ago, the British and American authorities handed down the first financial penalty related to Libor manipulation, against Barclays of Britain.

Since then, five financial institutions, including UBS, Royal Bank of Scotland and Barclays, have admitted wrongdoing and paid more than $3 billion in fines to regulators worldwide. The European Union’s antitrust authorities were not part of those previous settlements.

“The commission is determined to fight these cartels in the financial sector,” Mr. Almunia said in announcing the settlement.

But there are limits to the ability and authority of Mr. Almunia’s office to police financial institutions. To reach the settlement, the European Union antitrust authorities had to build a case based on collusive conduct among a group of financial firms, rather than improper behavior by a single entity or group of traders at one bank.

The European Central Bank will take over supervision of banks in the euro zone next year as part of efforts to create a banking union. But even then, the E.C.B. will not have police powers or direct responsibility for financial markets.

“There is a big need for better supervision of financial markets in Europe,” said Falko Fecht, a professor at the Frankfurt School of Finance and Management. “We don’t have a single supervisor for financial markets. This is a flaw in the design of the banking union so far.”

To set the Libor and Euribor rates, banks submit the rates at which they would be prepared to lend money to one another, on an unsecured basis, in various currencies and varying maturities. Investigations in the past two years have found evidence that traders at the various banks benefited from falsely reported rates.

The announcement on Wednesday means that for the first time two American institutions, Citigroup and JPMorgan Chase, will pay penalties in the rate-fixing investigations. But they will pay only about $200 million, combined — hardly a significant financial hit to banks with tens of billions of dollars in revenue a year.

And the activity under question by the European Union against the American banks only covered short time periods, the longest lasted about three months — not the sort of long-term manipulation that investigators could point to as evidence of an entrenched pattern of corruption. By way of comparison, some of the European banks were engaged in activity that went on for about three years.

“We are pleased to resolve this matter with the European Commission and to put this investigation behind us,” Citigroup said in a statement.

JPMorgan said that its part of the settlement, in which it agreed to pay $108 million, related to the conduct of two former traders during a one-month period in early 2007. The settlement did not find that JPMorgan management had any knowledge or involvement in the conduct at issue or that their actions affected the firm’s Libor submissions, the bank said.

The largest penalty was against Deutsche Bank, which agreed to pay about $980 million. The German bank said on Wednesday that the size of the penalty reflected its status as one of the biggest players in the market for derivative securities tied to interest rates, rather than any particularly egregious conduct by its employees.

Jürgen Fitschen and Anshu Jain, the co-chief executives of Deutsche Bank, said in a statement: “The settlement relates to past practices of individuals which were in gross violation of Deutsche Bank’s values and beliefs.”

Deutsche Bank, Citigroup and other large American banks are among the financial institutions still under investigation by the authorities in the United States and Britain.

Additional penalties may be assessed in those investigations as early as next year. But it remains unclear if any American banks will ultimately face action in those cases, according to people briefed on the investigations.

For Deutsche Bank, the settlement was a milestone in its efforts to cope with numerous lawsuits and official inquiries related to its conduct in recent years. The settlement amount was within expectations, and the bank said it would be covered by the $6 billion already set aside for legal expenses.

Deutsche Bank shares fell less than 1 percent in Frankfurt and New York trading as investors took the settlement in stride. Shares of Citigroup and JPMorgan Chase were also little changed in New York.

Royal Bank of Scotland said it had undertaken efforts to improve its systems and controls regarding Libor and other benchmark rates since it first became aware in 2011 of the improper conduct.

“We acknowledged back in February that there were serious shortcomings in our systems and controls on this issue, but also in the integrity of a very small number of our employees,” said Philip Hampton, the R.B.S. chairman. “Today is another sobering reminder of those past failings and nobody should be in any doubt about how seriously we have taken this issue,” he said.

Société Générale did not respond to requests for comment.

Chad Bray reported from London and Jack Ewing from Frankfurt. David Jolly contributed reporting from Paris.

Correction: December 4, 2013An earlier version of this article and its headline misstated the number of banks fined by the European Commission in connection with an interest rate-rigging settlement. The commission settled with eight financial institutions, seven of them banks, not eight banks. Six of those institutions were fined. Also, an earlier version misspelled the surname of the Deutsche Bank chief executive. He is Jürgen Fitschen, not Fitshen.

A version of this article appears in print on 12/05/2013, on page B1 of the NewYork edition with the headline: Europe Sets Big Fines In Settling Libor Case.